Tobacco giant reports drop in volumes

The world’s second largest tobacco group today said it sold fewer cigarettes as smokers cut back their consumption in the economic downturn.

British American Tobacco added that a rise in illegal trade in countries including South Africa, Turkey and Malaysia also impacted volumes, which dropped by 1% to 526 billion cigarettes in the nine months to September 30. This equated to a 3% drop in underlying sales.

The company, which has more than 250 brands in its portfolio, said floods in Pakistan and increases in duty on cigarettes across the world were also to blame for the decline.

Its four core brands – Pall Mall, Lucky Strike, Kent and Dunhill – saw sales volumes increase by 8%, driven by a boost in consumer purchases in Japan, ahead of a significant hike in duty.

The company, which employs more than 61,000 staff worldwide, said declining volumes did not get in the way of a rise in revenues – driven by increased prices and favourable currency movements.

The decline in volumes was in line with figures reported in its half-yearly results.

Michael Prideaux, director of corporate affairs, said the drop in volumes was less about the health effects of smoking, and more about the impact of tough global economic conditions.

He said: “It’s the continuing impact that the recession around the world is having on consumer’s disposable income.”

But Mr Prideaux said illegal trade in cigarettes – driven by hikes in duty taxes – was becoming an increasingly serious problem for BAT and the industry.

He said: “We’ve seen in some markets, not necessarily people stopping smoking, but a rise in the illegal trade.

“We’re not talking about a romantic notion of a white-van man, this is serious organised crime, which can involve drug dealers and even funds terrorist organisations.”

BAT recently entered into an agreement with the European Commission to collectively tackle the problem of illicit trade in tobacco.

Mr Prideaux said the company had been able to grow revenues through increased pricing and added: “Provided you’re improving the quality of your products, the consumer is generally prepared to pay.”

BAT is second only to Marlboro maker Philip Morris International in global market share. It reported revenues of £7.3bn (€8.3bn) in the six months to June 30 and operating profits of £2.3bn (€2.6bn).